The air is being let out of the college education system, as the fiscal rewards for obtaining degrees are becoming less than the amount of money needed to graduate. During an Atlanta Federal Reserve Bank Public Affairs Forum, Reynolds takes a look at how schools and students are responding to today’s market forces.

“College tuitions have been rising at a rate that vastly exceeds the rise in family income, or the general rise in the consumer price index, or pretty much any general economic measure you want to choose,” said Reynolds, the Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee and featured speaker at a March 13 Public Affairs Forum at the Atlanta Fed. “As they have done that, people have made up the difference with debt.”

For many graduates, the debt is so large it takes years to repay it. Making matters even worse, many recent graduates are struggling to find high-paying jobs, further complicating their financial position.

This bubble has not yet burst, but air is seeping out. One of the first places showing seepage is legal education. As of mid-January, the number of applicants to American Bar Association–accredited law schools was down 20 percent from a year earlier, after falling 14 percent in 2012, according to the National Law Journal. Consequently, Reynolds said, law schools face a dilemma: shrink their class size and forgo revenue, or relax admission standards and risk damaging their academic reputation. The University of Tennessee’s law school is downsizing its incoming class next year, Reynolds said. So too are even some of the nation’s most prestigious law schools such as Northwestern University.

….As more young people see friends and relatives with degrees serving coffee and living in their parents’ basements, the idea of borrowing tens of thousands of dollars to attend a traditional university will become less appealing. More focused skills training will probably become more common, and growing numbers of students and parents will opt for less costly online classes, Reynolds said. And new education models will probably emerge, he added. For example, students might take lecture classes online but physically gather with others to discuss the academic subject matter.